April 17, 2011

The Best of Times, The Worst of Times

Energy: A Tale of Two Narratives

When it comes to energy, two prominent narratives exist. The environmentalist narrative states that the world has only a limited amount of supplies of fossil fuel, so we need to enact steep taxes or other statist punishments to make people conserve what little they have. The classical liberal narrative, on the other hand, avows that there is no practical limit to most commodities people need, including fuels. Rather, as access to one type of fuel becomes less easy, the price of it will rise, which will encourage consumers to use less of it or more of a substitute.

Several recent stories illustrate anew how much more accurate the classical liberal model is than the environmentalist one. The first is the reportout of Texas that Chevron and other major oil companies have increased drilling in a very old field. Texas' legendary Permian Basin Field (which stretches from West Texas to New Mexico) was first exploited in 1925, and its reserves started declining decades ago. But recent advances in oil-extraction technologies such as fracking (the high-pressure injection of sand, water, and small amounts of chemicals into rock or other formation to loosen up the oil and separate it from the surrounding rock) are making oil in that old field easier to extract.

In fact, this year alone, Chevron will increase its investment in this one field by $600 million (which represents a third more money than it invested here last year) and drill twice as many wells as last year.

Spurring this new interest in old wells is the high price of oil -- now hovering around $110 a barrel -- due in turn to Obama's virtual moratorium on deep-sea drilling together with the spike in uncertainty in the Middle East (including our kinetic military action in Libya). Besides Chevron, both Exxon and ConocoPhillips are developing new wells (and reopening old ones) in the Permian Basin.

The second piece informs us of a potential new source of oil. As the piece notes, Canada is already our biggest oil supplier, providing us with more than two of the eleven million barrels we use every day. But given the spike in prices and the turmoil in the Middle East, interest is growing in a new proposed pipeline project.

The project, called the "Keystone XL Pipeline," envisions a pipeline from Alberta, Canada all the way down to Texas (where many of our refineries are). It would have connections to other pipelines to other refineries in the U.S. along the way. The Keystone Pipeline would have the capacity to give us yet another 1.1 million barrels a day from our kindly cousins in the Great White North. Our Canadian kin are moderately well-disposed towards us, unlike the Arabs and the Persians. I mean, when was the last time you saw some wild-eyed Canadian kid detonate an explosive belt to kill Americans while screaming, "The Maple Leaf is great!"?

So letting this project proceed would seem like an economic and national security no-brainer. Alas, the pipeline has been stalled by the no-brainers in Washington since 2008. Environmentalists have been in heavy opposition to the pipeline, and despite favorable reviews by both the State and Energy Departments, Obama -- the biggest no-brainer in Washington -- has ordered yet more environmental studies.

The environmentalist beef with the project is that the oil the Canadians will ship through the pipeline is be extracted from the reserves in their vast ranges of tar sands. These reserves are huge -- on the order of 175 billion barrels of oil, which makes for more than two-thirds of Saudi Arabia's proven reserves. But the environmentalists fear that the after-products of the tar sand oil extraction will harm the environment.

However, it is both presumptuous and silly for American environmentalists to oppose this joint project to ship Canadian oil. First, it is not as if Canada were a corrupt, third-world dictatorship where the leaders are willing to despoil their own country for some low-end cash. The Canadians have a fine record on environmental protection (as good as our own, in fact). And they have gotten the extraction process for tar-sand oil very ecologically safe. Over 80% of the water used in the extraction process is recycled, and the "trailing ponds" (which contain the remains of the extraction process) are being planted over with trees and shrubbery. And remember: these tar sands are already laden with petrochemicals to begin with!

So a project that would bring an estimated 20,000 new construction jobs and 250,000 long-term jobs overall to a country with an unemployment rate still up around 9%, not to mention bring about $585 million in corporate and other taxes -- and $5 billion in property taxes -- to states most of whom are experiencing financial crises, is being held up by the usual green dreamers. You know the green dreamers: they oppose all sources of energy known to work, and they support only sources of energy proven to be inefficient.

The third article ironically takes us to the Middle East -- and, even more ironically, to Israel, a county that traditionally has been an oil and gas importer. Much to the chagrin of the surrounding states so eager for it to disappear, the scrappy Jewish state is turning out to be a surprise energy powerhouse thanks to its embrace of the fracking technology. I have already noted in an earlierpiece elsewhere that Israel has employed fracking to liberate the natural gas in a huge shale field off it shoreline -- an estimated 16 trillion cubic feet of the stuff, or more than a century's worth of supply at Israel's current usage.

The shale fields in Israel also contain lots of oil. Israel's main shale field (about 30 miles southwest of Jerusalem) likely has reserves of oil about 95% of the total proven reserves of...Saudi Arabia! And unlike our own big field in Colorado, there is no aquifer running through it. In terms of shale oil reserves, Israel now ranks third in the world after the U.S. (which has an estimated 1.5 trillion barrels of shale oil) and China (with 355 billion barrels of it), and ahead of Russia.

All this is great news for Israeli security. Israel imports most of its oil by tanker from Russia and the former Russian empire, and in 2006, these supplies were cut off in Israel's war with Hezbollah. And Israel gets most of its natural gas from Egypt, which is considering cutting Israel off.

Look to these sorts of reports to continue...despite what the green dreamers would have you believe.